Residences springing up on its edges, but city's core goes begging for housing.

Updated 1:06 am, Sunday, January 20, 2013

The Steel House Lofts complex, near downtown on South Flores Street, is in an arts and residential district known as SoFlo.

The Steel House Lofts complex, near downtown on South Flores Street, is in an arts and residential district known as SoFlo.

Photo: Robin Jerstad, For The Express-News

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The Steel House Lofts in SoFlo also houses Johnny Hernandez’s new Fruteria restaurant.

The Steel House Lofts in SoFlo also houses Johnny Hernandez’s new Fruteria restaurant.

Photo: Robin Jerstad

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Although the Steel House Lofts complex is just blocks from downtown, it offers a favorite suburban amenity: a swimming pool.

Although the Steel House Lofts complex is just blocks from downtown, it offers a favorite suburban amenity: a swimming pool.

Photo: Robin Jerstad

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Although the Steel House Lofts complex is just blocks from downtown, it offers a favorite suburban amenity: a swimming pool.

Although the Steel House Lofts complex is just blocks from downtown, it offers a favorite suburban amenity: a swimming pool.

Photo: Robin Jerstad

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An artist built water tower that mimics the buildings original water tower features stained glass and multiple colored lights.

An artist built water tower that mimics the buildings original water tower features stained glass and multiple colored lights.

Photo: Robin Jerstad

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The Can Plant apartment complex at the Pearl can be seen in the foreground of this aerial shot. A two-bedroom apartment at the Can Plant starts at about $1,700 a month.

The Can Plant apartment complex at the Pearl can be seen in the foreground of this aerial shot. A two-bedroom apartment at the Can Plant starts at about $1,700 a month.

Photo: William Luther, San Antonio Express-News

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Potential buyers reportedly are beginning to show more interest in the Alteza, condominiums that are atop the Grand Hyatt San Antonio Riverwalk Hotel.

Potential buyers reportedly are beginning to show more interest in the Alteza, condominiums that are atop the Grand Hyatt San Antonio Riverwalk Hotel.

Photo: KIN MAN HUI, SAN ANTONIO EXPRESS-NEWS

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Heart of downtown doesn't feel like home

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Insurance executive Rob Arnold and his fiancee descended the red spiral staircase to the loft's first level, admiring the polished concrete floors and a modest, private yard — an amenity most apartments lack — at Steel House Lofts.

After deciding to relocate from Houston to San Antonio, they searched in 10 areas for a place to live — Sonterra, Alamo Heights and the Pearl Brewery among them.

Recently, they settled on a three-bedroom apartment in the former steel factory, its old water tower now a rooftop art piece redone in stained glass, on South Flores Street. The area is a burgeoning arts and residential district known as SoFlo.

“We're not suburbia people,” said Arnold, 62, who lives in downtown Houston. At Steel House, “I feel like I live downtown because I'm just blocks from downtown.”

When the couple move in next month, they'll join thousands of residents repopulating historic parts of the central city that hadn't seen a construction crane in decades.

More than two years into the “Decade of Downtown,” — as Mayor Julián Castro calls his revitalization initiative — at least nine residential developments opened in 2012 or are under construction at the Pearl and nearby, bringing fresh signs of life along the Broadway corridor.

South of King William, the 252-unit Cevallos Lofts, one of the biggest residential complexes, took in its first tenants last year, not far from Steel House, and the Camp Street Lofts and the Judson Candy Factory Lofts, both of which opened a few years earlier. Another 475 residences are expected in the SoFlo area and at Blue Star Arts Complex by 2014.

But so far, there's little to enliven the center of downtown. Save for a few government buildings, like the recent debut of the city's Public Safety Headquarters and the Robert B. Green medical center, and the $53 million expansion of the Metropolitan Methodist Hospital, the core remains devoid of new residential activity, and commercial investment is limp.

Developers largely shied away from the core of downtown even as they grabbed city and county incentives to construct projects on the north and south edges.

Some say the impediments continue to be high land prices, parking problems and buildings that, while historic, take more work to redo than freshly cleared sites, like those near the Pearl and SoFlo.

Castro and other city officials expect to see more robust reinvestment in downtown proper in the coming years, pinning their hopes on a revised incentives policy crafted to bolster the core area the most.

But it's too early to tell whether it will work, even in the less pricey blocks.

“This is going to be a multi-year effort,” Castro said. “It's SA 2020, not SA 2013.”

The public dime

Adding downtown dwellers is a top priority, with a goal of 7,500 new residential units by 2020 in the urban area, which the city defines broadly. The thinking is: drawing more people to live downtown will help balance the economic mix between residents and tourists, underdeveloped and vacant properties will gain new uses, and pressure to grow outward will decline. The urban core will become denser.

The city estimates private residential and commercial investment downtown has reached more than $471 million since the start of the decade. City officials consider public subsidies key to bringing about a lot of that development and workforce initiatives. City incentives for those projects — 13 residential and 11 commercial — total $51 million.

Bexar County has pitched in, too, with property tax abatements projected to total about $3 million over 10 years for eight projects.

So far, 2,250 new residential units in the downtown area are complete or in the works, according to the city's count, mostly with assistance from the previous incentives policy specifically for housing.

The City Council recently revised the policy, with the hope it would spur even more apartment and condo construction, and at a faster rate.

While the city is pushing hardest for new residential projects, City Manager Sheryl Sculley said it's not foregoing commercial redevelopment.

“In fact, it will take all of these things to truly make our downtown a remarkable place to live, educate, work and entertain,” Sculley said in an email. “We have a 'housing first' strategy, but it's not at the exclusion of the other factors. ... Plus, having strong center city neighborhoods surrounding the core is just as important as a strong core.”

Despite the city's focus on the core of downtown, recent residential development there is zero — even though the demand remains strong, especially among young couples, single people and empty nesters.

The Vistana, 247 apartments completed in 2009 on Santa Rosa, is a rare bird — the first major residential development downtown in decades. Now fully leased, the project benefited from city incentives, which helped developer Ed Cross overcome some of the difficulties of building in the urban core.

“The core just doesn't have a lot of vacant land that you can build on,” Cross said. “The Vistana, in retrospect, is a real anomaly. I tore down two buildings and put up a high-rise. That investment I did for a long-term hold, but for its initial return, it doesn't work.”

Cross built the Vistana under the city's old incentive policy.

In June, the City Council revamped the policy, now called the Center City Housing Incentive Program, for downtown housing with the goal of making development in the core more attractive.

The new policy removes cash grants, which were criticized by some council members, and relies more on loans. But it also includes real property tax reimbursement grants and fee waivers from, for example, the San Antonio Water System — and it builds in predictability.

The policy changed housing incentives to remove negotiation and discretionary incentives from the development process.

“It cuts out the negotiation time and the review time, which could be anywhere from three to 12 months,” said Lori Houston, director of the city's Center City Development Department. “You minimize risk to the developers, you expedite the process.”

On Thursday, the City Council amended the CCHIP boundaries to match the 36-square-mile footprint of the city defined in 1856 — which stretches just beyond Hildebrand Avenue on the north, east of Walters Street, past Fair Avenue on the south, and around 24th Street to the west.

Two projects have received the new incentives and nine others, which would bring more than 400 residential units to the downtown area, have applied for CCHIP benefits, including the Birdsong Peanut Factory Lofts on South Frio Street. Houston said some of the nine are located in the core.

The policy outlines “target growth areas” in four incentive tiers. The “urban core” area, otherwise known as downtown proper, is in Tier 1, and developments there can receive the most incentives.

“You'll get the greatest amount of loan funding per housing unit, and the reasoning behind that is because the price of land is greater in this area,” she said. “And you'll need to build more structured parking, and it will increase your project cost.”

The process now can be shortened to two to six weeks, Houston said.

Castro said he knows there are some people who won't support any incentives, but he's comfortable with the return on investment the city is getting.

“I understand the concern, but the imperative is too great to do nothing,” Castro said. “All of these issues are tied together. Where there's good development, there's more likely to be a good education system, a good quality of life.”

One developer who's taken advantage of the new incentives is Mitch McManus, who is building 17 townhouses called Casa Blanca Lofts on North Alamo Street. Its proximity to the Pearl and what is the likely streetcar route made it an ideal location, he said.

Besides incentives, the city is boosting downtown spending.

About $90 million of the overall $596 million bond approved by voters in May will go downtown: $40 million for major street realignments and improvements along Commerce, Market and Main streets, and $30 million for remaking HemisFair Park — a prime example of underused space — into a mixed-use neighborhood.

Streetcars, which would connect the Pearl Brewery area to HemisFair Park, are estimated to cost $190 million to $200 million, coming from the city, county and state.

The city and county have pledged an additional $165 million to cultural buildings: the relocation of San Antonio Children's Museum to Broadway, the Tobin Center for the Performing Arts, the Alameda Theatre and the Briscoe Western Arts Museum.

Not to mention the $75 million public investment in the Museum Reach and the $246 million being spent on the Mission Reach.

City officials hope this kind of spending — to build or refurbish or augment prominent downtown-area venues — draws in developers looking to trade on the area's improved quality of life.

Still, Paul Carter, whose family has spent years buying and refurbishing historic downtown buildings, said incentives will be a big potential factor. He's considering converting an empty two-story building he owns at Dolorosa and Calder into apartments.

“It's high on the list of possibilities,” Carter said about the former Bexar County adult probation offices. “It would work very well. It lends itself for that — plenty of parking, good location.”

But despite the buzz of activity, and the city's cheerleading, developers continue to grapple with the difficulties of building downtown.

Roadblocks

One of the biggest challenges continues to be land prices — whether developers are building from the ground up or revamping a historic building.

“What happens is that once you get into these buildings, the cost to get them to the point where they need to be, you realize it would be cheaper to start from scratch,” said Chuck Siegel, president of Rohde, Ottmers & Siegel Commercial & Investment Realtors.

Cross and other developers point to the plethora of high-rise hotels as stiff competition for land.

“San Antonio does have a wealth of historic office buildings that are really cool and great buildings to be converted (to residential),” Cross said. “But the hotel business has done so well for so long that those buildings never really became available at a price that an apartment conversion would work.”

One idea floating around is for the city to regulate hotel development in certain parts of downtown. That would force down land prices because landowners wouldn't have the option of selling their properties at a premium to hotel developers.

But for now, Brandon Raney, CEO of locally based BC Lynd, said people should be patient about development downtown, adding that projects at the Pearl eventually will increase demand for urban living in the core.

In April, an arm of the Lynd company acquired the St. Anthony Hotel on Travis Street, its first investment downtown, and will spend $24 million renovating it. The company shelved the idea of adding residential units on the hotel's top floors.

Home-making

In the downtown area — from River North to Southtown, and parts of the West Side — apartment occupancy rates for 2012 hovered around 86 percent, down from 94 percent the year before, according to data from market research firm Austin Investor Interests, which attributed the change to more apartments coming online.

“I hardly have any vacancies in any of my rentals downtown,” said Debra Maltz, a broker and Realtor with Kuper Sotheby's International Realty and Centro Properties.

Low mortgage interest rates and rising rents have more people considering condo living, she added. The Judson Candy Factory Lofts and Camp Street Lofts along South Flores are sold out or nearly so. And two high-rise condos — the Alteza, atop the Grand Hyatt San Antonio Riverwalk Hotel, and the Vidorra on the near East Side — are beginning to see more interest from potential buyers, Maltz added. The Vidorra, which opened in 2009, is about 70 percent occupied.

Maltz, who's been involved in downtown real estate for more than three decades, said interest in urban living is happening across the country, not just here.

“You never know when that demand is going to be saturated, but I think the market is still robust. We're doing well with the residential, and I don't think we're tapped out, not even close.”

Since 2008, rental rates for downtown-area apartments have jumped nearly 40 percent to $1.43 per square foot, according to the data from Austin Investor Interests. During that same period, the number of downtown apartments has nearly tripled.

In many cases, apartments rent for less in the core because the housing stock there is older than the developments north and south of downtown, Maltz said.

For example, a two-bedroom apartment at the Can Plant at the Pearl starts at about $1,700 a month compared with $1,150 a month for a similar unit at the Exchange, Building, Maltz said. That property is at North St. Mary's and East Pecan.

“The age of the property matters,” she said. “Because they're older and don't have the new things ... they're going to be more affordable than the newer properties.”

Dan Markson, senior vice president for the development firm NRP Group, said small center city lots “demand high-rise projects,” which usually means higher rents.

“We don't have the high-rise demand,” Markson said. “Would it be so bad if the development stay on the edges? It's not the end of the world to have it where it is. I'm all for development downtown but the economics don't warrant it.”

Arnold, the soon-to-be resident of Steel House Lofts, chose to live in the shinier, and costlier, outskirts of downtown. But he said he'll miss the fully stocked grocery store near his downtown Houston residence, something SoFlo and downtown still lack.

Though the Steel House apartment is pricier than some other places they considered, the location in a growing arts scene, with Johnny Hernandez's new Fruteria restaurant on the ground floor and other establishments nearby, made it a perfect choice for them.

“We like the neighborhood's eclectic blend and the emerging warehouse district. Here, there's a neighborhood feel, but you still feel a little urban,” Arnold said, as his fiancee considered how to arrange their furniture.